SK Hynix Ends Controversy Over Bonus Criteria Change... Labor Conflict Tensions Remain

[Asia Economy Reporter Suyeon Woo] The SK Hynix labor and management, which have been experiencing internal turmoil due to the performance bonus controversy, have reestablished the criteria for the excess profit sharing (PS) that pays 10% of operating profit as performance bonuses. While it is meaningful that labor and management have reached an agreement for transparent performance distribution, the issues of talent outflow and labor-labor (노노) conflicts sparked by this controversy remain challenges to be resolved.

According to the industry on the 11th, on the 10th, SK Hynix labor and management agreed on an improved PS calculation standard that uses 10% of operating profit as the source for performance bonuses. The existing performance bonus standard, 'Economic Value Added (EVA),' has been criticized for being ambiguous because it cannot be disclosed due to management strategy.

Labor and management agreed to abolish the existing EVA-based performance bonus standard and to link performance bonus payments to operating profit. They also decided to disclose the expected PS payment amount at the beginning of the year and quarterly, allowing employees to predict next year’s performance bonuses.

Regarding last year’s controversial performance bonuses, they agreed to additionally provide all members with employee stock ownership equivalent to 200% of the base salary and 3 million in-company welfare points. If the company grants employee stock ownership free of charge, employees must hold it for four years, but if employees purchase it at a 30% discount, the lock-up period will be reduced to one year. Loans will also be supported to ease the financial burden for employees purchasing discounted employee stock ownership.

[Image source=Yonhap News]

Annual Recurring Performance Bonus Controversy, Ambiguous Criteria Are the Problem

Performance bonuses are a sensitive issue for all office workers, including those in the electronics industry. In the past, employees passively expressed dissatisfaction with standards or amounts unilaterally set by companies, but nowadays, younger generations actively raise objections. For the MZ generation (born early 1980s to early 2000s), transparency and fairness are the most important values.

SK Hynix, which recently faced turmoil over performance bonuses, was criticized mainly by younger employees due to the ambiguity of the payment criteria. On the 28th of last month, Hynix announced it would pay last year’s performance bonus at 400% of one-twentieth of the employee’s annual salary. Employees strongly opposed this, pointing out that despite operating profit increasing by more than 80% compared to the previous year, the performance bonus was set at the same level as in 2019.

As criticism intensified, SK Hynix CEO Lee Seok-hee personally explained and tried to calm the situation, but the controversy did not subside. The company maintained the fundamental position that the existing EVA standard varies annually depending on operating profit, invested capital, and capital costs, and that the calculation method is confidential.

In response, the SK Hynix labor union demanded the abolition of the EVA system and the establishment of transparent performance bonus calculation criteria, which management accepted, selecting operating profit as the new PS standard. This joint establishment of consistent and transparent performance criteria by labor and management is interpreted as a groundbreaking precedent in the business community.

[Image source=Yonhap News]

Hynix Scarred by Performance Bonus Controversy... Challenges of Talent Outflow and Labor-Labor Conflict

Although SK Hynix quickly responded to conclude the performance bonus controversy, it is expected to take considerable time to restore the once-broken labor-management relationship. It is reported that the number of employees considering resignation has increased internally, raising concerns about talent outflow.

With the possibility of a 'super cycle' in the semiconductor industry due to explosive untact demand caused by COVID-19, competition to attract talent among competitors is intensifying. Samsung Electronics’ semiconductor division, a direct competitor of SK Hynix, recently posted large-scale job openings, and another competitor, Micron, is seeking experienced workers to work in Singapore, Taiwan, and other locations.

Additionally, the potential labor-labor conflict between the full-time union involved in this labor-management negotiation and the technical office workers’ union, which was excluded from negotiations, is identified as a factor threatening company stability. The technical office workers’ union has pointed out the unfairness of the 'Self Design' employment rule change as an extension of the performance bonus issue but was excluded from negotiations and had no opportunity to discuss it with management.

The technical office workers’ union plans to file a collective lawsuit, arguing that the 'Self Design' employment rule violated the law because it was changed without union consent. They claim that this employment rule gave executives a pretext to arbitrarily reduce employees’ performance bonuses, causing disadvantages to employees.

On the other hand, management explains that the 'Self Design' rule was introduced in 2018 when the personnel evaluation standard changed from relative to absolute evaluation to increase autonomy in performance bonus distribution within teams. Under current labor law, changes to employment rules that disadvantage workers require the consent of the majority of the union. If the dispute proceeds to court, the key issue will be whether the 'Self Design' employment rule was intended to disadvantage the union or not.

This content was produced with the assistance of AI translation services.